Microsoft has struck an artificial intelligence (AI) energy deal with United Arab Emirates (UAE) oil giant ADNOC after a year of extraordinary diplomacy in which it was the vehicle for a US strategy to prevent a Chinese military tech grab in the Gulf region.
The latest in a line of AI deals that Microsoft has struck in the UAE this year, it is the fruit of a strategic partnership the US struck with the Gulf state in September to entwine the UAE with US strategic interests and technology, after it started investing its oil wealth in a plan to become an AI superpower.
It also entrenches Microsoft’s place at the crux of the environmental crisis, pledging to help one of the world’s largest oil firms use AI to become a net-zero producer of carbon emissions, while getting help in return in building renewable energy sources to feed the unprecedented demand that the datacentres powering its AI services have for electricity.
The same paradox was played out at the COP 28 climate conference in Dubai last December, while Microsoft prepared to ink a $1.5bn investment in UAE state-owned AI and datacentre conglomerate G42, where Sultan Ahmed Al Jaber, ADNOC oil chief, chaired a global agreement to ditch fossil fuels.
But the agreement raises a question of why Microsoft needs the partnership to explore the potential for renewables to power AI, when a considerable proportion of electricity required to run the power-hungry computers in the world’s datacentres already comes from renewable sources. This came after massive investments by US big tech firms, and when a third party in the deal is Masdar, the renewables arm of a UEA sovereign wealth fund, set up to invest the state’s oil wealth in renewables. This helped the Gulf state attain a similar place in the world’s top 10 rankings for solar power output as it has in oil production. Masdar’s investments include the UK’s Dogger Bank wind farm, set to become the world’s largest.
Power struggle
It is a crucial question for UAE, which has established its credentials in making some of the most notable breakthroughs in AI tech in recent years. This includes the Falcon large language model, which is compared for its acumen with well-known AI engines operated by US big tech firms, and is the world’s first Arabic AI model. The petrostate seeks to be a world leader in AI, while the global energy transition strips it of the oil and gas wealth upon which its economy was until recently almost entirely dependent.
Al Jaber, who is also UAE industry minister, characterised these last weeks as a crisis, worsened by an anticipated population surge across the southern hemisphere, and by the unexpected and exponential growth in demand for power from datacentres housing AI computer systems.
It is a crucial matter for UAE because the weather in the Middle East is so hot that it takes 50% more energy to cool a datacentre there than in the cooler northern reaches where most datacentres operate, according to Tassos Peppas, regional director of Vertiv, a supplier of datacentre power and cooling systems crucial for running the prized Nvidia computer chips crucial for the big AI systems.
“The Middle East is not the best place for energy efficiency,” he said. No matter that energy in the Gulf was typically 90% cheaper than Europe, and that the same datacentre, on balance, would cost up to 80% less than one in Europe.
Unanticipated until 18 months ago, the UAE has now called for a boost in all forms of cleaner energy, including the liquid natural gas to which the country has turned to as a less-polluting fossil fuel export than the oil, which is still a primary source of power across those countries where populations are booming and economies are industrialising fast, Al Jaber told a global conference of oil and energy chiefs, and state officials from across the southern hemisphere.
Those countries, across Africa, Southeast and Central Asia, and the Asian subcontinent, where UAE has a long tradition of trade, have become a destination for Emirate investments in AI, energy and port infrastructure. The firms Microsoft has been doing business with have all been spreading their influence by making such AI investments across the wider region. Microsoft itself did a $1bn AI deal with the UAE in Kenya in May.
Gateway to growth
That explains both Microsoft and US motives in the Gulf state, as UAE AI minister Omar Sultan Al Olama put it in an interview with US think tank Atlantic Council when the software giant took its massive stake in G42 in in April. UAE is a “gateway” to Africa, Southeast Asia and India. He likened great power competition in AI, and international negotiations over AI regulation such as the UK’s own Bletchley Park summit, to the Cold War nuclear arms race.
“UAE is the perfect hub where the US can showcase its technology for the rest of the developing world in a way that asserts its supremacy in this domain,” he said. UAE’s Falcon AI was a vehicle the US could use to assert that supremacy, because it was known and trusted in Africa, for example, while Falcon would benefit from getting access to advanced US AI technology.
That trade-off came at the expense last year of G42 purging its systems and datacentres of Chinese technology, paving the way for a strategic deal with the US two months ago, and a series of tie-ups. These included a $100bn investment fund that Microsoft formed with US financial giants BlackRock and Global Infrastructure Partners, and UAE state-owned AI investor MGX.
Microsoft president Brad Smith joined UN environment envoy Mark Carney and the CEOs of most major oil firms to agree on the eve of the energy conference that the crisis was so great that it would need gas, as well as nuclear and renewables, to solve it.
The software giant’s latest contribution will be the AI engine for a UAE effort to make its fossil gas exports more competitive, as well as its energy system greener. Microsoft will help run a national infrastructure of energy grid battery plants UAE needs to store output from what it claims is the world’s largest solar farm, as it completes construction in the next five years. Al Jaber, sitting on the boards of most of the firms involved, as well as running the industry ministry, and Microsoft’s Smith, will be at the centre of it all.